Big companies make big mistakes. It may come as a surprise to some of you that Vodafone messed up its globalization drive in late 90s. Although they were the first to recognize the potential of horizontal consolidation, they didn’t execute the integration very well.
After they had acquired Omnitel (the second largest mobile operator in Italy) and Mannesmann (the biggest player in Germany) they decided to centralize most functions in Newbury, UK. They were seeking efficiencies through economies of scale. This centralization of almost all functions caused enormous resentment. Many senior executives left but the plan seemed to work. After all, Italy isn’t that different from Germany or UK as a mobile market. This emboldened Vodafone to apply the same globalization model to J-Phone in Japan in 2001. It’s there that the one-size-fits-all strategy bombed. They lost market share and momentum. This Sep-2005 NY Times article describes what went wrong. Eventually in Mar-2006 they sold the Japanese operation.
It’s taken many years and the retirement of Chris Gent to make an about-turn possible.
I watched all this play out through the eyes of a senior executive at Vodafone. He was one of two independent directors in my NJ-based startup in 2001-4 (and is now a dear friend).
Interestingly, Telefonica went about things very differently. While they too acquired mobile operators (mostly in various Spanish speaking countries), they left the local management intact. To bring about synergies and efficiencies, they pulled out some respected executives to form an overlay organization that focused on benchmarking and transfer of best practices.
If you look back over time, the Telefonica approach has worked much better. Telefonica has outperformed Vodafone on almost every parameter. I attribute a lot of this to their more thoughtful globalization model. Take a look at their 5 year stock performance…
Global integration and local responsiveness
The contrasting approaches of Vodafone and Telefonica taught me a great deal about the importance of getting the globalization model right. This requires striking the right balance between global integration and local responsiveness. Not only is this not easy, this is often ignored.
Surprising effective globalization is not that common even in sales and marketing programs. The “faithful replica” disease is widespread. For instance, Intel has gone overboard here in India with its “Dual-core, Do more” campaign. This campaign is makes no sense to a first-time buyers in India. It’s a waste of money but then who’s going to convince the adamant corporate communications VP sitting in California.
Compared to sales and marketing, getting the right balance between global integration and local responsiveness for corporate functions (like HR, facilities, IT, etc.) is harder but just as important. Not getting this right then manifests as an operational weakness. I wrote about zero-day-joining-experience some time back.
Probably the least understood area today is R&D globalization. The models exist – I wrote about them in my IEEE article (unfortunately subscription required, short description is here) sometime back - but they are poorly understood and practiced. Some companies have created large product R&D teams in India, sometimes with thousands of engineers, in an ad-hoc and tactical fashion. Having helped bring about a turnaround of the VERITAS operations in India recently (where R&D was a large part of the overall footprint), I know first-hand the challenges of bringing about orbit-change there.
As a wiser Vodafone celebrates its Hutch acquisition, it’s time for everybody else to do some introspection about globalization models.
[You may want to checkout a related short article, “Faithful Replicas don’t have a Future”, which talks about the need for a site strategy for Indian R&D captives.]
[Update: Anand Giridharadas has an interesting article in NY Times and IHT about this Vodafone - Hutch deal. He writes: “It is also a sign of the changing times that the questions surrounding the deal are not so much about Vodafone’s right to enter the market and compete with Indian enterprises as they are about whether big multinationals can handle that competition”.]
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